Empirical evidence says that the myriad of alphabet soup regulatory agencies didn’t work to prevent the systemic breakdown of the financial system on a global scale, stemming from CMBC activity. Of course, I’m not naive to think that they would have prevented it, but I do think the scale of the crisis was significantly larger as a result of the lack of logical oversight.

It’s not about lack of regulation, it’s about limited coordination, lack of responsibility and most importantly, departmental turf wars.

Senior administration officials are considering the creation of a single agency to regulate the banking industry, replacing a patchwork of agencies that failed to prevent banks from falling into the worst financial crisis since the Great Depression, sources said.

OCC and OTS would go away and their responsibilities would be distributed to FDIC and the Federal

One of the key issues, which runs parallel to investment banks being able to select the most favorable ratings agency or mortgage brokers to pick their own appraiser, is the fact that banks can pick whichever regulator is most lenient: FDIC, OTS or OCC.

Seriously, a regulator that is competing with other agencies to get more banks to work with them to justify their existence is inherently flawed.

Of course the American Bankers Association is against this:

“As a practical matter, I think the idea is a nonstarter,” said Ed Yingling, president of the American Bankers Association. He said the administration should focus on the two ideas that command the broadest consensus: the creation of a system risk regulator and a resolution authority for collapsing companies.
“That’s probably all Congress can handle,” he said. “They can propose a lot of things, but there’s a real risk in doing so that you just overload the system.”

Good grief. Use of the word “Risk” and “Overload” seems kind of quaint at this point, doesn’t it?

The proposal also urgescreation of a new government agency to conduct “prudential regulation,” with supervision authority over state and federally chartered banks, bank holding companies and insurance firms, the source said.

Yes the Fed will have new powers, but seriously, why have any of these agencies if they aren’t very effective? In the current format, it all seems like a colossal waste of taxpayer dollars unless the system is streamlined and reorganized. However, the turf wars will move from the regulators to Congress aseveryone tries to hold onto their power base.

The new bank regulatory agency could prove controversial because it would consolidate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and strip supervisory powers from the Federal Reserve and the Federal Deposit Insurance Corp.

Ideally, it is in everyone’s benefit to reduce the regulatory clutter and create clean lines of responsibility and authority. My worry is that we don’t jettison enough of what didn’t work after the power struggle/compromise struggle shakes out.

Thursday night I got a call from Bloomberg TV asking if I could come to their studios to do a segment and I begged off. I had opted to work from home on Friday because one of my kids was getting an award at school in the morning and I wanted work at home…plus it was the Friday before Memorial Day weekend. Wait, why am I justifying this?

They offered to set up a remote interview (third party company) in CT so I didn’t have to commute into NYC. Easy enough. Google maps said the remote studio was 10 minutes away – I gave myself 25 minutes. The address wasn’t on my GPS unit so I used my iphone, following the pulsating blue dot.

15 minutes before air time
Forgot about heavy Memorial Day traffic.

10 minutes before air time
I got to the street, but there were no numbers on the building I was ultimately looking for but I ran out of street. There was a security booth at the end of the street and a woman without teeth in the booth grunted to go around the corner.

7 minutes before air time
I enter the parking garage, which connected multiple buildings, and of course none were identified with numbers. I guessed it was the farthest building away. I was right.

5 minutes before air time
The lobby security guard had no idea where a TV studio was, so I called the contact number and they told me what floor to go to.

3 minutes before air time
I took the elevator to the floor and no one is there – just a series of glass doors in 3 directions. I picked one and started walking around trying to find the studio. Nothing was labeled.

1 minute before air time
Some came out of an unmark door, took me to the remote studio, mic’ed me up with a minute to go. And then anchor Peter Cook in DC started speaking to me to get acquainted.

air time
We went live and the TV feed was Fox News for the first 30 seconds instead of Bloomberg – a bit confusing. But somehow it worked out.

This week, I have a conversation with economist Dr. Kevin Gillen, Vice President of Econsult and is affiliated with the University of Pennsylvania as a Research Fellow in its Institute for Urban Research, through which he publishes his quarterly updates on the current state of Philadelphiaâ€™s housing and condominium markets. Heâ€™s been sharing his research each quarter with the readers of my other blog, Matrix for which I am grateful.

In the podcast we cover his Philadelphia Housing Indices, as well as the three key economic hurdles facing the Philadelphiaâ€™s housing market:

Problems with the accuracy and proposed redistribution of tax assessments

The controversial 10-year tax abatement

Political turmoil relating to the building trades and the associated above average cost of construction.

My commercial valuation partner John Cicero, MAI in our firm Miller Cicero oversees the report preparation. The report is the only one of its kind that tracks cap rates, income multipliers, price per square foot and number of sales.

The format has changed to quarterly and the expanding series will be more borough-specific.

An excerpt:

The first quarter of 2009 property sales market in Manhattan is
characterized by a dramatic slowdown in sales activity. This is
the first period tracked that truly reflects the market mentality
created in September 2008 with the collapse of Lehman
Brothers, the federal bailouts of AIG, Fannie Mae and Freddie
Mac, and the ensuing paralysis of the credit markets throughout
the fall. (In contrast, our last market report for the second half
of 2008 included numerous sales that were negotiated pre-
September)…

Massey Knakal will distribute nearly 300,000 hard copies of the report over the next few months.

Comments Off

Sure happy it’s Thursday to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Today the Lockhart Steele and the Curbed Network officially launch Curbed Hamptons, a revamped version of the former site “The Beach” to prove once and for all, that there really are curbs at the beach.

From Westhampton to Montauk, and every place in between, CurbedHamptons covers the real estate, neighborhoods, and personalities that make the Hamptons, well, the Hamptons.

Allie Herzog of Quinn & Co. who was the moderator, posted an introduction to the panel discussion at the GreenPearl event – the video clips are available online. The series is surprisingly informative, despite my participation.

If you’re interested in learning about the topic, I feel pretty strongly that it’s worth listening to even, even if the weather is nice outside and you do have a life.

In other words, the institutional entities that are responsible for ordering, reviewing, approving and managing licensed appraisers, aren’t held to the same or similar standard – Appraisal Management Companies (AMCs).

One of the byproducts of New York State Attorney General Cuomo’s agreement with Fannie Mae (HVCC), was to prevent mortgage brokers from ordering appraisals for conforming mortgages that would be purchased by Fannie Mae. That’s a good idea in general. But by doing that, most national retail banks and many regional banks, are forced by necessity to manage the appraisal process directly. Few have the overhead to do this and therefore resort to appraisal management companies. Call an 800 number and order a report anywhere in the country.

Appraisal management companies are generally paid the same fee as an independent appraiser would be, so they have to find appraisers who will work for 1/3 to 1/2 the market rate (or 2/3 the rate as their trade group claims). To differentiate, they generally require 24 to 48 turn time per assignment, yet an appraisal is not a commodity like a flood certification – it’s a professional analysis by an expert.

Think about it - their argument is essentially this: Taking a 40% pay cut is a whole lot better than a 50% pay cut.

Whether it’s 40-20-10 [yet even more spin] or whatever percent the fee reflects what willing sellers (appraisers) and willing buyers (AMCs) in the local marketplace are willing to accept based upon their own self-interests. To try and draw a cause-effect relationship between fee and quality before congress is a little bit disingenuous, absent hard data.

Here’s the AMC fee logic in a nutshell:

If an employer posted a job listing with a starting salary 40% below the last hire’s salary – this will result in no measurable differences in the quality of job applications received? Forget the correlation/causation argument, what about common sense?

Appraisal management companies are not currently regulated at the federal level and regulation at the state level varies. Regulation would ensure that AMCs operate within the same basic guidelines and standards as independent appraisers. Further, this allows AMCs to be regulated within the existing appraisal regulatory structure, which avoids the need to create additional layers of government bureaucracy.

The Appraisal Institute announced the House version of bill 1728:

Furthermore, the bill requires separation and clear disclosure of fees paid to appraisers and fees paid for appraisal administration (i.e., fees paid to appraisal management companies); prohibits the use of broker price opinions in loan origination; and requires registration, and a regulatory framework, for Appraisal Management Companies, with mechanisms to prohibit infiltration by appraisers sanctioned by state regulatory agencies.

The appraiser is placed in a computerized queue and is given an assignment

The appraiser gets 1-2 calls by young kids out of high school making sure the appraiser will turn around the assignment in 24-48 hours

The appraiser has to be very pushy to be able to get into the property in order to turn the assignment around in time.

If there is a valuation problem or issue that needs interpretation by the AMC, the solution is often to just disclaim the problem in the addendum somewhere.

Little if any interaction available from qualified appraisal professionals on AMC staff

The appraiser gets more work if the jobs are turned around faster because the queue is set to have maximum amounts allowed by an appraiser at any one time.

Remember, the fees are half market rate. In higher cost housing markets, the fees can be as low as 1/3 the market rate because the AMC appraisal fees are often set at national rates. In other words, appraisers in Manhattan would be paid the same as North Dakota even though the cost of doing business is 4x higher in Manhattan.

Now imagine the quality and reliability of this product, which is not a commodity, but an expert opinion prepared by a professional. It’s hard imagine much professionalism squeezed in this process, isn’t it?

HR 1728 H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act was just passed by the House and Senate and is ready to be signed by POTUS. Here’s the appraisal portion.

It looks as though AMCs will be licensed just like appraisers will:

â€˜(7) maintain a national registry of appraisal management companies that either are registered with and subject to supervision of a State appraiser certifying and licensing agency or are operating subsidiaries of a Federally regulated financial institution.â€™

However, this will be more of a revenue opportunity by the states – licensing doesn’t have much to do with competence. Plus, I don’t see how states will have the manpower to provide meaningful oversight other than clerical aspects.

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About Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc.Learn More...

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